It seems that every week, one analyst or another reports on smartphone growth… the number of users in a given country by year, many times grouped by OS.

I find that this analysis lends itself to confusion when terms such as 'superphones' and '3G texting phones' are thrown around. So, in light of recent bullish predictions on phone growth in general during 2010, I'm going to go out on a limb and make my own predictions.

I'll keep things simple. First off, a smartphone is a smartphone, whether it is smart, super, incredible, alien, or made out of kryptonite. Second, I'll focus only on OSs that support post-load applications through an ecosystem that supports post-loading of applications.

This includes the iPhone (News - Alert), RIM, Android, Window Phone, Symbian, WebOS, the various flavors of Linux such as LiMo, Bada, and MeeGo, and to a lesser extent, Brew Mobile Platform. I'm not going to make predictions about the success or failure of a given OS (a recent presentation by Frost and Sullivan did a good job on this front), but will discuss them in the context of phone BOMs (the cost of building the handset), which ultimately influence subsidies and volumes

To put the analysis in context, Oppenheimer, taking a vendor-centric approach in their Feb, 2010 Smartphone Survey, predicts shipments of 256 million in 2010 growing to 325 million in 2011. These are shipments and not installed base. Both IDC (News - Alert)and Gartner approach the analysis in the same way, with the former more closely aligned to the Oppenheimer numbers. Gartner is a bit more aggressive, showing 447 million in 2011 growing to 619 million in 2012:

Last August, Credit Suisse published a report that, to the best of my knowledge, is the first to look at the problem from a Total Cost of Ownership. This is interesting, in that it is based on income vs phone and service pricing, and then calculates the potential market. The TCO includes the device cost as well as the monthly service plan. For example, as depicted in the table below, in 2009 this was $900 on average in the United States, and $387 in India. This TCO informs the addressable population based on the percentage of disposable income that an individual is willing to pay for the device and service. It varies by region:

In North America, this is 1.3 percent, while in Asia-Pac, it is 3.7 percent. That is, due to the value placed on the service by individuals in developing regions, they are willing to pay more of their income. It is a logical conclusion. Fast forward to 2015, and the TCO, according to Credit Suisse, drops to $331 in the United States and $227 in India. 80 percent of the US population is therefore in reach, but only 8 percent in China due to a very different income distribution. Globally, 1.5B subscribers are 'smartphone-eligible' at that time, and assuming a 33 percent per year replacements, volume is at least 500 million devices.

My belief is that this TCO-driven approach is the most valid, and I'll use it as the starting point for my own analysis. The predictions by Credit Suisse are open to interpretation, and growth, due to the percentage of income that people are willing to spend on connectivity, data services pricing, and handset BOMs. I think they are conservative, and can be adjusted upward

In both China and India, I'll assume that the predictions are correct as to the number of households that will fall into a given income range. However, these things are hard to predict, as depicted by the table below that shows the distribution of income over time. Moving the average just a few points to the right could vastly grow the TAM. What is more telling is the percent of this income that an individual is willing to spend. The report does differentiate between developed and developing regions, placing the first 1.2 percent and the second at 3.3 percent based on an extrapolation of telecom spending as a percent of GDP. That is, an individual in a developing country will be willing to spend 3.3 percent on average of his or her income on a smartphone and service plan. But what if this is off by a percentage or two? Even in the US, we're seeing 20-somethings making sacrifices in their spending habits. Where landlines, autos, and even cable TV are not a factor, the individual's single link to the outside world has a special meaning. The 3.3 percent could easily grow to 5 percent. So, I'll go out on a limb and use this in my calculation.

Easier to predict is the decrease in service pricing and handset BOMs. On the pricing front, subscribers in India can obtain GPRS data plans (using Aircel, as an example) for as little as $2.50 per month (plus voice). Even Blackberry plans may be had for $15. Over the course of a year, a typical data user with voice could get by on $120 or less, and even once 3G is launched, $150 should seem reasonable. These assume unsubsidized devices, so the real barrier is the cost of the Android (News - Alert)or Symbian phone. Here is where I take a more aggressive view on phone costs.

At MWC this past February, the '$100' smartphone was all the rage, with the HTC (News - Alert)Smart probably the best example. Based on BMP, I'd envision that within a year, hardware at this price-point will support Android based on recent announcements by the chip vendors. In contract, today, an Android device requires about $150 to build. WebOS is there already, and there are rumors of a 'low-cost' Window Phone (News - Alert) 7 at some point in the future. Separate from the smartphone discussion, low-cost devices based on S40 already support email and browsing, though not downloadable applications. So, by 2013 or so, the up-front cost of the smartphone does not play as major a role in affordability as it does today. Between the service plan and the phone, let's figure $250 for the first year, $150 for the second, or $200 across both. By 2015, this could easily drop to $150 across both years. Where does that leave us?

Using the Credit Suisse table, a somewhat inexact calculation tying TCO for India to the percentage of available population shows the following: 1 percent growth for each $23 decline in TCO.

Thus, the $200 in 2015 yields 11 percent, growing the 104 million previously reported to 143 million.

Now add the increased percentage of income, as described earlier. Adjusting this from 3.3 percent to 5 percent, and once again using an inexact calculation, grows the TAM by just over 50 percent. In other words, an individual that today earns $6060 is a potential subscriber if willing to spend 3.3 percent of his salary. At 5 percent, this drops to $4000. In contrast, today's TCO of $837 and 3.3 percent spend equates to an income of $11,727.

So, in 2015, India could support 217 million smartphone subscribers.

Globally, the 1.5B subscribers previously calculated will grow to 2.4B or more even after taking into account less of an impact of TCO and spending flexibility in the developed regions.

The bulls are on the run!

David Ginsburg (News - Alert) (News - Alert)is vide president of marketing at Innopath Software.

Edited by Michael Dinan